Westpac Group chief executive Brian Hartzer has predicted an “orderly slowdown” in the housing market, dismissing talk of a credit crunch as the bank reported a lift in interim cash profit on the back of growth in consumer and business banking.

Speaking to Westpac Wire after handing down the $4.25 billion interim cash profit, Mr Hartzer added that the banking regulator’s report last week into the governance, culture and accountability of Commonwealth Bank of Australia was a “really important wake up call for the whole industry”.

“Clearly each company is different and has their own issues, but there are absolutely some general themes there that make it required reading for anybody in the industry,” he said.

“We need to continue to challenge and question ourselves and we need to hold ourselves to account when things go wrong and we’re certainly very focused on learning the lessons from that.”

Concluding the major banks’ interim results season, Westpac today reported a cash profit of $4.25 billion, up 6 per cent on the prior corresponding period as the net interest margin expanded to 2.17 per cent.

Operating income increased 4 per cent to $11.2 billion while operating expenses lifted 3 per cent on the prior corresponding period and 1 per cent on the second half of 2017. This included costs associated with the royal commission, which Mr Hartzer acknowledged had raised significant customer and community concerns and that some of the issues raised across the industry “shouldn’t have happened”. He said Westpac was already advanced in taking steps to improve customer outcomes.

Return on equity increased to 14 per cent while the bank’s common equity tier one capital ratio was 10.5 per cent, in line with the banking regulator’s “unquestionably strong” benchmark required by 2020. The interim dividend was held flat at 94c.

Mr Hartzer described it as a “high quality” and “clean” result free of “one-offs” reflecting the consistent delivery of the group’s service revolution strategy, notwithstanding the “difficult external environment”. Mr Hartzer said despite headwinds to the growth outlook such as higher funding costs and increased scrutiny on the sector, there remains “opportunities to grow” and the economy was “fundamentally sound”.

Westpac’s interim impairment charge fell 20 per cent on the same period last year to $393 million, or 11 basis points of gross loans.

Mr Hartzer said the lending books were performing well and that the housing market – which has been cooling in recent months amid price falls in major cities – would likely experience an orderly slowdown. He said while any further tightening lending standards may slow housing credit growth, Westpac had been making changes to its credit policies and approval processes for several years.

“A lot of the tightening that people refer to has been happening over the last couple of years. That’s continued…but we’re still seeing growth, credit growth has still been in the 5-6 per cent range for home lending. With the changes that have come through in the last year we may see that growth rate fall a bit.

“But what that represents is an orderly slowdown in the housing market, which shouldn’t be confused with a reduction in the housing market. We still think credit quality is good, we think the underlying demand for housing is there.

“If you look at the actual credit performance of the book it’s very strong, we’re talking about as good as it gets when you think about credit provisions overall. We don’t have any particular sectors in our business that are giving us undue concern at the moment. That said, when you’re managing a large credit book like ours you can’t afford to be complacent.”

As banks globally adapt their operations to shifting technology, regulation and customer demands, Mr Hartzer said Westpac was “about half way through” the changes flowing from the service revolution strategy with “some very exciting things coming in the next year or so that will really help ramp up the efficiency across our whole platform”.

Michael Bennet is Editor of Westpac Wire. He joined Westpac in 2017 after more than 12 years in journalism, most recently at The Australian as the national newspaper’s banking reporter based in Sydney. Michael has worked at various News Corp publications and other media companies covering industries including financial services, resources, industrials, markets and economics. He is originally from Perth, Western Australia, where he also wrote across magazines covering the arts with a focus on music.

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